Taxman threatens low-doc doorknock

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As many as 100,000 people with "low-doc" home loans designed to
avoid income checks are now at risk of tax audits, after a random
survey by the Tax Office found half were not paying tax.

Tax Commissioner Michael Carmody said yesterday the ATO had
uncovered evidence suggesting that some of those taking out
unconventional home loans were engaged in "substantial
understatement of income".

Low-documentation or "low-doc" home loans are reported to be
growing rapidly as lenders fight for a bigger share of the
deflating housing market. If borrowers have an unblemished credit
history, lenders do not require evidence of their income, but
simply take their word for it.

In the past, the price used to be a higher interest rate to
cover the increased risk. But increasingly, lenders are offering
low doc loans at the same rate as documented ones. It is estimated
low-doc loans now account for 10 per cent of home lending.

With roughly $200 billion a year lent for homes, that would mean
$20 billion a year is lent to borrowers who do not have to prove
their income. The Big Four banks have been wary of low-doc loans,
but low-doc loans account for more home lending at other banks.

Mr Carmody told ABC TV's Inside Business program that Tax
Office investigations found low-doc borrowers who understated their
income and failed to lodge returns were primarily in cash economy
industries, predominantly building and construction.

The ATO has found that:

- In a random survey of 370 people with low-doc loans from eight
lenders, half had not lodged tax returns recently and on average,
were three years overdue.

- A targeted audit of 120 low-doc, "high-risk" clients of one
mortgage broker has resulted in collections of $23 million in back
tax and penalties, or almost $200,000 for each.

"We will be systematically doing data matching to check
lodgement of returns from people who have applied for and obtained
low-doc loans, and we'll develop sophisticated risk analysis to
identify the ones where we suspect understatement of income is
significant," Mr Carmody said.

He also revealed that up to 500 people could be targeted in the
separate investigation announced last month into offshore tax
avoidance schemes  far more than the 12 individuals
originally targeted.

Mr Carmody said 60 to 70 people had come forward to spill the
beans on the scheme, which has involved a handful of tax promoters
moving income to offshore tax havens and bringing it back disguised
as loans, inheritances, gifts or credit on credit cards.

"The investigations are now extending well beyond the original
people and promoters involved," Mr Carmody said.

His comments come as prominent Liberal backbencher Malcolm
Turnbull yesterday stepped up his campaign for the Government to
cut top tax rates and pay for it by wiping out tax breaks.